PITTSBURGH – A Pittsburgh law firm, one of its partners and a former firm associate have been denied their motion to dismiss a lawsuit filed by a Florida oil and gas company that claimed the defendants’ collective fraud and deception caused the company to lose $678,000 in direct funds and $35 million in potential revenue and profit generation.
Prime Energy and Chemical of Jupiter, Fla. initially filed suit in the U.S. District Court for the Western District of Pennsylvania on March 15 versus the law firm of Tucker Arensberg, one of its current partners Michael A. Shiner and one of its former attorneys, Kenneth L. Carroll III, all of Pittsburgh.
The plaintiff accuses Tucker Arensberg, Shiner and Carroll, along with their clients, Mark A. Thompson and his business Mid-East Oil Company, of independently and collectively committing a number of fraudulent acts throughout the years 2015 and 2016.
In a statement previously issued to the Pennsylvania Record, Tucker Arensberg denied any and all wrongdoing on its own part and that of its attorneys.
“Tucker Arensberg, P.C. is aware of the lawsuit filed on behalf of Prime Energy and Chemical, LLC. Prime is not, and has never been, a client of the firm. The firm is investigating the matter and believes there is no merit to the allegations contained in the complaint and intends to vigorously defend against those allegations,” the firm’s statement read.
“With respect to the assertions in the complaint, the firm believes that they are false. The firm is confident that the court proceedings will validate that the conduct of the firm’s attorneys was ethical and in compliance with the law. It is the firm’s policy not to comment on ongoing litigation matters. Therefore, there will be no further comments about this case by Tucker Arensberg, P.C.”
The alleged acts include:
• Misrepresenting Thompson’s alleged ownership of the Swamp Angel property in McKean County, whose assets the plaintiff intended to purchase for $3 million through MarcellX (not owned by Thompson) and Mid-East Oil, while fraudulently concealing the Prushnok Family of Punxatawney, who are the true owners of MarcellX and the Swamp Angel property. The assets included the property lease, 164 existing oil and gas wells, rights for drilling future wells and shallow mineral rights in drilling to the Haskill Formation, at a depth of 2,600 feet below the ground.
• Misrepresenting that Prime Energy’s $600,000 deposit for the purchase of the Swamp Angel property, which comprised 20 percent of the total purchase price, was being placed into an attorney escrow account named for Tucker Arensberg/Shiner, but instead knowing it was not transferred to that account – rather, it was allegedly transferred to an account controlled by Thompson and not used as a deposit to purchase the property from the true owners, the Prushnok Family – while supposedly also participating in procuring an additional $78,800 from Prime Energy & Chemical, and claiming it was being applied to the purchase of the property.
• Misrepresenting the purported absence of pending litigation to which the property and assets were subject, when in fact a multi-million-dollar investment fraud was at that time pending before the U.S. District Court for the Western District of Pennsylvania – a case surrounding the very same Swamp Angel property and in which Tucker Arensberg represented Thompson and Mid-East Oil Company – which ultimately resulted in a recent $2 million fraud judgment being levied against both Thompson and his company.
• Systematically and fraudulently concealing the aforementioned wrongdoing from Prime Energy & Chemical.
• Being negligent in its supervision of the activity of Shiner and Carroll alleged, with Tucker Arensberg bearing responsibility under the respondeat superior theory of liability.
• Directly causing the loss of Prime Energy & Chemical’s $678,800 and a two-year postponement in the fulfillment of Prime Energy & Chemical’s revenue and profit generation for the property, which, measured according to the selling and financial documents prepared by defendants and their clients, has resulted in further losses to Prime Energy & Chemical in excess of $35 million, for which recovery is sought.
In its motion to dismiss, Tucker Arensberg asserted Prime Energy’s fraud claims against both Carroll and Shiner should be dismissed due to not possessing the requisite particularity or specificity of “who, what, when, where and how” the alleged fraud took place.
But, Kelly explained the complaint “indicated that both [Carroll and Shiner] were involved in each pivotal portion of the transactions at issue”, such as the depositing of $600,000 into a Tucker Arensberg escrow account and representing that the Swamp Angel property was not the subject of pending litigation.
“These allegations, at this stage of the litigation and in the context of the detailed description of the transactions set forth in the complaint, on balance, are sufficient to place defendants ‘on notice of the precise misconduct’ with which defendants are charged,” Kelly said.
“Specifically, and apart from the alleged misrepresentations contained in the PSA, Carroll and Shiner are alleged to have provided instructions to wire money to an account falsely represented by them to be an attorney escrow account, and Shiner is alleged to have falsely represented the purpose of the transferred funds, and thereafter personally benefitted from the transaction. The motion to dismiss on the basis of the alleged insufficiency of the allegations of fraud and reckless misrepresentation is denied.”
Kelly further ruled that a settlement of cross-claims made against Thompson in the Indiana County Court of Common Pleas did not preclude legal action against the remainder of the defendants, nor were the plaintiffs’ fraud claims invalid as a result of that same prior litigation.
“The case at bar, as argued by Prime Energy, does not present an instance of vicarious liability asserted against an agent, but rather claims of joint and several liability for each agent’s independent actions. At this stage of the litigation, it is not yet determined whether the evidence will support independent or joint and several liability but based upon the allegations of the complaint, read in a light most favorable to Prime Energy, the Court is constrained to agree that dismissal on this basis should be denied,” Kelly stated.
Likewise, Kelly did not concur with the defendants’ argument that the complaint was a rehash of a breach of contract lawsuit as a fraud or tort claim, and therefore, a violation of the “gist of the action” doctrine.
“Here, Prime Energy’s claims raise the social duty owed by defendants to all individuals to refrain from fraudulently misrepresenting essential facts to induce a party to act to detriment, e.g., to wire funds as a ‘deposit’ to an account that is not the safe harbor it was represented to be. Under these circumstances, the ‘gist of the action’ doctrine does not bar Prime Energy’s claims and the motion to dismiss on this basis is denied,” Kelly commented.
Nor did Kelly agree with the defendants’ argument that they had no duty to act in the interests of an opposing party, the plaintiffs, due to there being no sufficient allegation of an intentional tort (the basis of an exception to the ‘duty to act’ rule).
In the end, Kelly decided to reject the motion to dismiss outright.
“Dismissal based on the absence of privity found in a traditional attorney client-relationship is not required because the complaint sufficiently alleges that Shiner and Carroll made fraudulent misrepresentations of fact, opinion, or intention for the purpose of inducing Prime Energy to act to its detriment. It is alleged further that Shiner directly received a pecuniary benefit from the transaction. At this stage of the litigation, these facts are sufficient to nudge Prime Energy's claim across the plausibility threshold to survive a motion to dismiss,” Kelly stated.
For alleged counts of fraud, reckless misrepresentation, negligent supervision and negligence under the respondeat superior theory of liability, the plaintiff is seeking direct damages of $678,800, consequential damages of at least $34,892,000, punitive damages in an amount to be determined at trial, which plaintiff will ask to be equal to treble the amount of direct and consequential damages, interest, attorney’s fees, costs and such further relief as may be deemed just, in addition to a trial by jury.
The plaintiff is represented by Charles B. Manuel Jr. of Manuel & Associates, in New York, N.Y.
The defendants are represented by James R. Schadel, Scott R. Eberle and Stephen L. Guzzetti of Burns White, in Pittsburgh.
U.S. District Court for the Western District of Pennsylvania case 2:18-cv-00345
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com